What is pay equity?

Pay equity refers to equal pay for team members performing “similar” job duties—irrespective of gender, race, ethnicity, or any other protected characteristics. Pay equity requires leadership to examine the roles and responsibilities of individual team members, to ensure employees with similar roles and tasks are being fairly and equally compensated.  It’s the process of mitigating salary disparities among employees.

Why is pay equity important? 

Pay equity is a critical issue for the twenty-first-century workforce. By creating a workplace that promotes pay equity, you can attract diverse and talented candidates, increase retention, and improve company culture. It’s also imperative to remain compliant with state and local pay equity laws to avoid equal-pay litigation brought about by employees.

Pay equity laws

In the early 1960’s, pay equity was brought to the forefront of the agenda , with the introduction of two notable federal laws. These new laws were established to govern the prevalence of discriminatory pay gaps in the workplace. 

  • The Equal Pay Act of 1963. Challenging gender bias, this law mandates that men and women–employed at the same business–should receive equal pay for equal work.
  • Title VII of the Civil Rights Act of 1964. Expanding upon the scope of protection afforded by the Equal Pay Act, Title VII denounces any pay discrimination based on gender, race, religion, or nationality.

What is a pay equity analysis? 

Pay equity analysis refers to a method used to research your organization’s pay rates, to identify pay disparities, and find opportunities to improve situations of unequal pay for equal work. Pay scales are cross referenced against a variety of criteria, such as gender, race, seniority, or education. The main objective is to remove discriminatory pay discrepancies and ensure compliance with federal and state laws.

How can you conduct a pay equity analysis?

Pay equity analysis is not a simple process. It requires a combination of data evaluation with financial and legal expertise. Businesses generally follow these steps when conducting an analysis:  

  • Outline a framework. Define your methodology, scope, budget and timeline for the pay equity analysis and share with key stakeholders.
  • Understand your current position. Review your current pay scales and job descriptions to understand your existing situation. This helps address potential issues emerging during the analysis. 
  • Collect workforce data. The output of the audit largely depends on the type of information gathered. Data collection should focus on (but not limited to) job function, gender, race, experience, length of service and job performance, among other factors.
  • Workforce data analysis. Compare the data inputs into the analysis, such as the salaries of all team members with similar job roles, against pay equity laws and external company benching compensation insights.
  • Review your findings. Not all pay discrepancies are illegal or unwarranted. If the wage is based on experience, performance, or seniority, pay differences are valid.
  • Correct discriminatory wage gaps. Consult with HR leaders and finance on the best way to commercially correct discriminatory wage gaps.

What is the difference between pay equity and pay equality?

Pay equity and pay equality both work to undermine systematic bias against certain demographics. Pay equity ensures management pays people based on their job role and not their protected characteristics, whereas pay equality is a little broader. Pay equality is concerned with company-wide compensation, investigating whether all members of the team have the opportunity to earn the same salaries. It requires HR leadership to decide whether there’s equal representation present in all positions across the pay spectrum of their company.

What is the difference between pay equity and pay parity?

Superficially, pay parity and pay equity seem similar. Both are related to pay inequality in the workplace but are in fact two distinct terms:

  • Pay equity is concerned with paying people fairly and consistently without discrimination for the same or similar job roles.
  • Pay parity is specifically concerned with erasing discrepancies in pay between men and women in the workplace. Pay parity places the responsibility on leadership to evidence pay equality. 

The key difference is whether or not companies take professionals’ credentials and comparable work performance into account when pay equality is viewed.

How can employers improve their pay equity policies?

Achieving pay equity relies upon more than a pay equity analysis. Modern companies have improved their pay equity policies by following these steps: 

  • Staying updated on compensation trends. Regularly review your internal salaries across your teams and departments, and benchmark externally. This creates competitive onboarding and compensation practices which align with industry standards. 
  • Embracing pay transparency. When managers are open about pay decisions, they create a culture of integrity, trust and communication in the workplace. Pay transparency also challenges managers to justify any raises they award on a performance basis. 
  • Proactive, not reactive, salary negotiations. Setting and communicating clear objectives for your team can lead to raises, bonuses, and promotions. This helps avoid sudden ultimatums from team members threatening to leave in lieu of a raise. 
  • Prioritizing budgets. Minimizing wage gaps requires careful budgeting and the diplomatic skill set to manage conflicting priorities. After all, pay equity is a financial investment.